Operator
Good day, everyone, and welcome to this Quote Media second quarter 2024 results conference call. At this time, all participants are in a listen-only mode, but later you will have the opportunity to ask questions during the question and answer session. You may register to ask questions at any time by pressing the star and 1 on your touchtone phone. Please note today's session is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn today's program over, rather, to Mr. Brendan Hopkins.
Brendan Hopkins
Thanks, Jim. and thank you all for joining us. I have a brief safe harbor, and we'll get started. Except for historical information contained herein, the statements in this conference call are forward-looking statements that are made pursuant to the safe harbor provisions in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. With that said, I'd like to turn the call over to Dave Schworn, CEO of Vote Media.
Dave Schworn
Thanks, Brendan.
Brendan
Welcome, everybody, and thank you for joining us. We're happy to go over our 2024 Q2 results. As you've probably seen in our filings, we achieved just under $4.7 million in revenue for the quarter, plus an increase of $341,000 of deferred revenue. A significant portion of the deferred revenue increase is a result of a lot of setup, development, and customization work, we completed for several of our new as well as larger clients. Generally, this means that we've been paid by the clients and performed the related work to get the client ready to go live, but we have to recognize that revenue spread out over the term of the service contract, which could be as long as three, four, or five years. So as I plan for the future and analyze how we're doing, I don't just look at the revenue lines. I look at everything. I look at our revenue, plus I look at the amount we build and collected from our clients in the quarter, which is set up in development work that we've done but can't recognize as revenue. So you can see, without having to defer, our revenue would have been higher. In addition, as I mentioned before, we've been deep in development, and we are releasing several new products as well as additional proprietary data sets later this year. We have lots of new clients in the pipeline, and we're getting closer to getting them signed. And we're hoping to see some of the larger new prospects close in the coming months. In summary, everything's going well, and we do feel like we'll have a strong finish to the year and believe that we'll have a very exciting 2025. I'll now pass the mic to Keith Randall so he can take us through the numbers for the quarter, and then we can answer any questions.
Keith Randall
Thank you, Dave, and welcome, everyone. I'll start with the income statement. Note that all comparisons are on a year-over-year basis unless otherwise noted. Overall, we had a 1% decrease in total revenue for the quarter. We had a few clients who reduced their spending with quote media, offsetting the revenue from new clients added during the quarter. Breaking down our revenue, interactive content revenue, which is web display content, increased 3% from the comparative quarter. An increase in the average revenue per customer was offset by a decrease in the number of customers. Total closed stream revenue decreased 4%, with corporate closed stream revenue decreasing 5%, and individual closed stream revenue decreasing 2%. both resulting from slight decreases in the number of customers and average revenue per customer. Our cost of revenue consists of fixed and variable stock exchange fees and other data costs and amortization of capitalized development costs. Our cost of revenue increased 1% for the quarter. This is mainly due to increased amortization expense associated with capitalized costs related to improved infrastructure, new product development, data collection, and the expansion of our global market coverage. Our gross margin percentage was 48%, a 3% decrease, which was primarily due to the increase in cost of revenue from the comparative quarter. Our total operating expenses increased 10% for the quarter. Most of the increase relates to additional personnel hired to achieve our expansion objectives, including improvements made to our infrastructure, security, and business continuity management. Sales and marketing expenses increased 3% due to increased personnel costs offset by a decrease in stock-based compensation expense. We incurred $60,000 in stock-based compensation expense in the comparative quarter related to the fair value adjustment to our preferred stock warrant liability. G&A expenses increased 12%, primarily due to the increase in bad debt expense related to increasing our allowance for bad debts by $125,000 during the quarter. This was offset by a decrease in professional fees. as we incurred additional professional fees in the comparative quarter resulting from the change of principal accounts in January 2023. Software development expenses increased 15%, primarily due to additional development personnel hired since the comparative quarter. We also capitalized a lower percentage of software developer salaries versus the comparative quarter, resulting in increased development expenses. Our net loss for the quarter was $251,000 compared to net income of $74,000 in the comparative quarter. The decrease in net income was mainly due to increased personnel costs and $125,000 increase to our bad debt allowance during the quarter. We expect our bottom line to improve for the remainder of the year as pending sales deals close and our revenue growth improves. Our adjusted EBITDA was $493,000 compared to $808,000 in the comparative quarter, a decrease of $314,000. Please refer to the reconciliation included in our press release for the calculation of adjusted EBITDA. Turning now to our balance sheet and cash flow statement, our cash total $233,000 at quarter end, which was $109,000 decrease from our year-end cash balance of $342,000. Our deferred revenue totaled $2.1 million at quarter end, which was a $300,000 increase from the $1.8 million at year end. The future costs associated with realizing that revenue is minimal, as the majority of our deferred revenue relates to setup and development work already completed. Those setup and development fees have been deferred and will be recognized in future quarters over the service contract to which they relate. Our year-to-date net cash flow from operations was $1.6 million, while net cash used in investing activities was $1.7 million, primarily due to spending on infrastructure and product development. Thank you, and I'll now pass it back to Dave.
Brendan
Thank you, Keith. We're now happy to open up the call for questions, and if you have any future questions after the call, please feel free to reach out to Brendan Hopkins, And his email address is bhopkins at coldmedia.com. So we'll now have questions.
Operator
Gentlemen, thank you. And to our phone audience, if you would like to ask a question, simply press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing star and 2. Once again, that is star and 1 on your touchtone phone to ask your question. And we'll pause for a moment to give the audience the opportunity to signal us. Once more, ladies and gentlemen, that is star and one on your telephone keypad if you would like to ask a question. We'll hear first from Ankur Sagar. Please go ahead. Your line is open.
Ankur Sagar
Hi. Good afternoon, David and Keith. Thank you for taking my questions. You know, first question really regarding the revenue, if I look at last year, I mean, it was a modest growth year. I mean, you had quarters with 10% revenue growth. Since the beginning of this fiscal year, Q1, Q2 has definitely been quite weak in terms of the revenue performance. I mean, you have lost a couple of clients in the prepared remarks today. I mean, some clients have decreased their spending. You know, and I think the new auto growth has been loud. Is there, you know, anything you can comment on? Is it just due to the competitive pressures? I mean, are you seeing increasing competition or, you know, why is it taking longer to close new deals or even, you know, that you're losing some or they're decreasing the spend lines?
Brendan
Yeah. Thanks for the question. You know, I don't think, you know, obviously business goes in surges, ups and downs and things like that, but the reality is, like, looking at our prospects, looking at our pipeline, looking at, you know, all the clients that we're talking to now, small, medium, and large, and going through, you know, kind of projections and looking at what we're hoping to close in the next three months, the next six months, the next nine months, that type of thing. We do all of that. Those numbers and that spreadsheet is actually unbelievable. So I'm really happy with what we're doing. I'm really happy with all the companies that are coming to us. It just takes time. The bigger ones obviously take time. We're doing some proposals that are really, really great. the the it's just that we've had yeah i mean the the first quarter was was rough because we lost some clients at the very end of the year and that continues obviously those are recurring clients that are no longer there or the decreased spend is no longer there and so you're you're you know you're fighting through that as the quarters continue but at the same time um the amount that we're doing, the amount of new data sets, new products, catering to these clients, catering to our very large clients that are coming to us for much more stuff. Budgets are coming out. They want to spend a lot more with us every year. And so as their budgets come out, they're assigning big blocks of money for us. It's really, really good. So, you know, I guess it's just a, it's a picture that people don't see the future picture, I guess, which is unfortunate. And it's very hard for us to do as a public company. We can't go down that path and talk too much about the future. And so it's just, I guess, internally, we look at all of this and we go through, you know, everything with the sales teams and it's very good. Like things are very, very good. So I just wanted to say that.
Ankur Sagar
And so it seems to me, and I think you said the same thing last call as well, you seem pretty confident for the pipeline when you see it. Why is it taking longer to close this pipeline? And if you look at the rest of 24 years, what is your confidence level in being able to close some or a good chunk of it? Are these just very large deals? Anything you can share about that, that would be great. I would assume being already in Q3, you probably have some level of confidence there as to what you can probably close in the next couple of quarters or so.
Brendan
Yeah, exactly. And that's why I think we're going to have a strong end of year. I think that 2025 is going to be very strong. It's a matter of are these closing sooner? Is it going to take longer? How much more discussions have to go on? How much more analysis, evaluations You know, some of these projects are like one year of implementation, one year of setup, one year of development customization in order to then go live for a five-year contract, things like that, right? So it takes a long time to do all of this. But we're taking out, you know, incumbents. We're replacing sometimes, you know, several vendors with a firm. to take over everything, whether it's the actual workload, the development work, all the data sets, the different, you know, all the different areas that they're maybe licensing from all kinds of other third parties that cold media is replacing. We're incredibly strong now as far as doing that. We can substitute out, you know, lots and lots of vendors at certain firms and take over everything, which is power right now. And all of this is proprietary data now to Quote Media. We own it. We are collecting all of this ourselves. We're very strong in all of the data areas too, right? Yeah, it's just a matter of closing.
Ankur Sagar
Are these deals like six-figure, seven-figure deals? And are these in recurring revenue in nature? And Again, what's your confidence level in terms of being able to close some, you know, before the end of the year?
Brendan
Yeah, there's every level of deal, right? I mean, obviously, the smaller ones are ongoing, and we're always, you know, working on those. But the bigger focus is the medium ones, the larger ones. Those are the ones I'm more focused on, trying to get those over the finish line, trying to find out if there's anything more that needs to be done. You know, do we need to get in a room one more time and discuss everything? You know, how do we push this faster? Sometimes it's timelines for the client. Sometimes it's their timing of their budgets. You know, there's a lot of parts and pieces to it all. It's when do they terminate other contracts. You know, I guess that there's nobody wants things closed more than I do. right? Like I do everything in my power to make it happen. But it's, you know, sometimes you just have to wait. It's like, no, you can't, they're not going to close this month. There's still this and this to go over and this and this to review. But yeah, there's every level, every size, every size that you can imagine is in the pipeline.
Ankur Sagar
One last one regarding the profitability and cash flow. So as you have, you know, mentioned, I mean, being a data company, Code Media is profitable. It does generate cash. You know, you mentioned about, you know, having this multi-year cycle where you, you know, chose to really heavily invest into your products. If I just look back at the audited financials in the last five years since 2019, you know, Code Media has generated about $12 million of cash which a good chunk of that has went into software development. And the story is pretty much the same for the six months of 24. And that bet obviously allows you to control the destiny and not depend on other vendors. Obviously, that has taken time to get paid for that and have that new revenue ramp that you're expecting. Does it make sense for now to dial back on that and at least let the cash collect on the balance sheet rather than just keep investing into that software development efforts that you're doing?
Brendan
Yes. I mean, really, we're not, I don't think that there's any more like massive projects that we're looking at. There's a handful of smaller projects that we want to do as, you know, and we budget for them and we plan for them. And there's a few other data sets, for example, that I'd like to make sure that we finalize and we go down certain paths. We're doing a lot of internal data now, so it's not additional costs necessarily except for man hours and manpower, but doing all of our proprietary data behind the scenes, our analytics, all of our trading idea, all of the crunching of all the different numbers to flag different things for our clients and for improved trading activity and things like that. So that's really where a lot of the energy is going now. We've kind of finished all the bigger projects that we were working on over the last few years. I think probably the last, I would say, four years has been very, very big on new developments of new products and new data sets and getting rid of third parties and just collecting everything ourselves. So um yeah it's been it's been four years of hard hard work but i don't think it's like it's not like it's going to continue like that where we're going to keep spending another you know five million or whatever on the next if i if i just to you know one one addition to that i mean if i just look at the six months financial maybe keith can chime in too um
Ankur Sagar
I mean, the company did generate about $1.6, $1.7 million of cash, and that was capitalized in a software development cost. And I'm referring to that. I mean, that software development, can that not be dialed back? Is it just the maintenance of your existing data sets? Is that what it is?
Brendan
Most likely. I mean, Keith, you know, maybe you can address it.
Keith Randall
Well, we can't capitalize maintenance. right? So that maintenance of the expenses. And you'll know from my comments, you know, we're capitalizing a smaller percentage of or lately we've been capitalizing a smaller percentage of developer salaries, which increases the software development expense when you capitalize less, right? So I don't see our We were hiring at a pretty rapid rate over the last four years. I see our hiring leveling out. I do think we'll probably dial back the development over the next year.
Ankur Sagar
Basically, we're on that same expectation. If the revenue ramps from here, would you be signing any deals from this pipeline that you're so optimistic about that just drops to the bottom line and and gross to cash and net income.
Keith Randall
As Dave said, there's always going to be a new development to be done or enhancement to existing products. Really, that's a lot of what we're doing is to develop. What we're capitalizing is almost most of it is enhancements to existing products as well, remember.
Ankur Sagar
Yeah, yeah. I just, you know, just by closing on my comments on this, I mean, I say it in a way it's, if I just look back, the company has invested this much cash into its products. You know, obviously, I don't think you guys are very happy with where the public market valuation sits right now. With just you guys putting $12 million into the business, the valuation of this company is at $18 million today. The revenue is not growing, so does the net income. So I hope this is probably the trough of it and, you know, things change from here for the best. And I think that's what you expect as well. Yeah, no, exactly. All right, great. Thank you for taking my questions.
Operator
You bet. We'll move on to Michael Kopinski. Please go ahead. Your line is open, sir.
Michael Kopinski
Thank you. Just a couple of follow-up questions related to the comments there. In terms of the revenues, how much is related to competitive pricing? Because I know that there's always that element there. So, you know, versus lower volumes that we've seen from existing clients. I know we've talked about volumes in the past and was wondering if it's a macroeconomic situation that you could talk a little bit about. And of course, versus the loss of clients and was just wondering if you can kind of give us a thought on what that annualized revenue from the loss of clients might be, if you can just give us a little color there.
Brendan
Yeah, Keith, I don't really know numbers. I mean, I just kind of know our historical, you know, we're typically running it around a churn rate or a loss rate in the year of about 3%, I think. So we've got a 97% retention rate. I think that's been consistent all the way along. I know at the beginning of this year, we had, you know, that kind of happen. We're not really predicting a lot of loss of more clients, but it's just, you know, at the end of the year, that happened. But Keith, do you want to address some of that?
Keith Randall
Well, and also remember, too, that some of the decreases are clients that are changing their data. Maybe they want to save money on data, so they're switching to less expensive data. And some of that is like pass-through fees. So some of the decrease in revenue doesn't really impact our bottom line that much. If you're talking about clients who just change the, you know, say exchange data, for example, so. Keep that in mind, too, because we have had clients that are looking for – their invoices have gone down, but a lot of that in many cases is just exchange fees.
Michael Kopinski
And what was the annualized revenue from the clients that you lost in the fourth quarter of 2023? Okay.
Keith Randall
Yeah, I don't have that figure. I mean, we can talk after, but I don't have that figure at my fingertips right now. So I'd have to look into that.
Michael Kopinski
And then in terms of you indicated that you're expecting a stronger second half or a strong end of the year, I was wondering if you could just put some color around that. In particular, are you looking for 5% growth? Are you looking for 10% growth? And you could just give us some sense of what you mean by strong.
Keith Randall
Yeah, I think if you're talking revenue growth, I think the third quarter is going to be relatively flat. But the fourth quarter, I think we're probably looking at about a 5% increase over the fourth quarter of last year.
Michael Kopinski
Gotcha. And then has the conversion time from pipeline of business to actual revenue, has that tail kind of gotten longer? Or can you kind of give us a sense of what's happening in terms of the conversions?
Dave Schworn
Dave, do you want to address that?
Brendan
Yeah, I mean, it all depends on the client. So, you know, when we go through all the reviews, I mean, there's, I think, several hundred clients on the go at the same time all the time, and you're looking at when they will close, when do they terminate their other agreements, when do we start our development work, all of these things. So, It's hard to say. I mean, there's always short tail and long tail and every kind in there. And then some of them are, you know, they're massive. And you're like, okay, is that going to close, you know, by the end of the year? Or is it going to be probably not? It's just too big to close by the end of the year. So it's probably going to close in 2025.
spk00
But, you know, it's...
Brendan
It's really hard to answer questions like that because every client's different and everything that we're looking at is different. And the bigger they are, the more complex they are. The more that you're taking over four or five vendors, you're having to integrate into their trading system, their order management system, so that they can release all of our products to their clients that have integrated trading and turn off all of their other products. So there's, you know, you can see that that can take time. T